http://amap.missouri.edu

Dairy Outlook

August 14, 2019

Dr. Scott Brown

Agricultural Markets and Policy

Division of Applied Social Sciences

brownsc@missouri.edu

What Are the Key Issues?

Dairy cow numbers are finally declining

Productivity increases will keep milk output from falling much

Some states still not in contraction mode

Either supply restraint must continue, or demand must improve

Demand for milkfat has held up, not so much for skim solids

Butter prices continue to run well ahead of nonfat dry milk

Total fluid milk consumption declines continue

Most dairy product stocks have eased a bit, but remain heavy

A mixed bag on the trade side

Export quantities have struggled in 2019, but values hanging in

Other major exporters struggling to push supplies much higher

U.S. All Milk Price

12

14

16

18

20

22

24

26

28

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

Dolla

rs p

er

Cw

t.

U.S. Dairy Cows

9.05

9.10

9.15

9.20

9.25

9.30

9.35

9.40

9.45

9.50

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

Mill

ion H

ead

Dairy Cows

5.95

6.00

6.05

6.10

6.15

6.20

1.40

1.50

1.60

1.70

1.80

1.90

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

Mill

ion H

ead

CO+ID+KS+TX+WA AZ+UT+WI All other (right axis)

Productivity Adds to Production Growth

-2

-1

0

1

2

3

4

1991 1995 1999 2003 2007 2011 2015 2019 (p)

% C

hang

e v

s. P

revio

us Y

ear

Milk/Cow Cows Production

Change in Milk Production,

Jan-Jun 2019 vs. Jan-Jun 2018

5.3%

1.5%2.2%

-3.0%

3.2%

-3.2%

-10.9%-1.3%

6.4%

1.9%

0.0%

2.9%

2.2%

0.6%

0.7%

-4.9%

0.7%

-4.6%

0.4%

-8.8%

1.1%

-5.1%

-6.6%

Quarterly U.S. Milk Production

-4

-2

0

2

4

6

1998 2001 2004 2007 2010 2013 2016 2019

% C

ha

nge v

s. P

revio

us Y

ear

WASDE August 2019 Forecast

US Milk Returns

0

5

10

15

20

25

30

2004 2008 2012 2016 2020 (p)

Dolla

rs p

er

cw

t.

Feed Costs Non Feed Costs All Milk Price

2019 DMC Signup Underway

Tier 1 should elect $9.50 coverage in 2019

It appears nearly one-half of production history

signed up for five years to receive the 25%

premium break

Signup ends 9/20/19

2020 signup should start soon after 2019 signup

ends

How does DMC affect aggregate supply response?

Milk Less Feed Costs (DMC Margin)

0

2

4

6

8

10

12

14

16

18

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

Dolla

rs p

er

Cw

t.

DMC Feed Components

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

Dolla

rs p

er

Cw

t.

Corn Soybean Meal Alfalfa

Historical DMC Payout Versus Premium Costs

0.04 0.06 0.09 0.13 0.180.25

0.340.47

0.65

0.89

1.18

1.51

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50 $8.00 $8.50 $9.00 $9.50Pre

miu

m C

ost

and

Ave

rage P

aym

ent

2000

-2018

DMC Coverage Level

Avg pmt, 2000-2018 Tier 1 Premium Tier 2 Premium

0

2

4

6

8

10

12

2018 Farm Bill: $9.50 DMC Payments

20% 40% 60% 80%0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

CA ID MI MN NY PA TX VA WI

2002 2007 2012 2017

Percentage of operations <200 Cows

U.S. Fluid Milk Consumption

40

50

60

70

80

90

100

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Pounds p

er

Pers

on

Whole 2% Lowfat

Butter Supply and Use Changes

-40

-30

-20

-10

0

10

20

30

Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19

Mill

ion P

ounds v

s. Y

ear

Ago

Production Net Exports Stocks

Cheese Supply and Use Changes

-40

-20

0

20

40

60

80

100

120

Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19

Mill

ion P

ounds v

s. Y

ear

Ago

Production Net Exports Stocks

NFD Supply and Use Changes

-80

-60

-40

-20

0

20

40

60

80

100

Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19

Mill

ion P

ounds v

s. Y

ear

Ago

Production Net Exports Stocks

U.S. Dairy Wholesale Prices

50

75

100

125

150

175

200

225

250

275

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Cents

per

Pound

Butter Cheese NFD Milk

Global Dairy Product Prices

0.0

0.5

1.0

1.5

2.0

2.5

3.0

7 Jan2014

1 Jul2014

6 Jan2015

1 Jul2015

Jan-16

Jul-16

Jan-17

Jul-17

Jan-18

Jul-18

Jan-19

Jul-19

Dolla

rs p

er

Pound

Butter Cheese SMP

U.S. Dairy Exports

300

360

420

480

540

600

660

720

780

105

120

135

150

165

180

195

210

225

Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

Mill

ions

Volume (kg) Value ($, right axis)

Monthly Butter Prices

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Jan 16 Jan 18

Do

llars

per

po

un

d

U.S. Oceania

Net Exports 2014 = 105.8 Mil. Lbs.

2015 = -4.0 Mil. Lbs.

2016 = -17.7 Mil. Lbs.

2017 = -11.2 Mil. Lbs.

2018 = -20.8 Mil. Lbs.

YTD 2019 = -18.7 Mil. Lbs.

Monthly Cheese Prices

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Jan 16 Jan 18

Do

llars

per

po

un

d

U.S. Oceania

Net Exports 2014 = 196.7 Mil. Lbs.

2015 = 89.1 Mil. Lbs.

2016 = 72.9 Mil. Lbs.

2017 = 113.3 Mil. Lbs.

2018 = 136.3 Mil. Lbs.

YTD 2019 = 85.5 Mil. Lbs.

Milk Production Growth, Major Exporters

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Australia New Zealand EU U.S.

Pe

rce

nt ch

an

ge

vs.

ye

ar

ag

o

2018 2019

Exports from AU/NZ/EU

400

600

800

1,000

1,200

1,400

1,600

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019(p)

Thousand M

etr

ic T

ons

Cheese Butter SMP

Skim Milk Powder Stocks

0

50

100

150

200

250

300

350

400

450

500

2000 2003 2006 2009 2012 2015 2018

Thousand M

T

EU Other non-U.S.

China Powdered Milk Imports

0

100

200

300

400

500

600

700

800

2000 2003 2006 2009 2012 2015 2018

Thousand M

T

WMP SMP

Quarterly U.S. All Milk Prices

10

12

14

16

18

20

22

24

26

1997 2000 2003 2006 2009 2012 2015 2018

$ p

er

cwt

WASDE August

Class III Futures, August 2020

Summary

Milk prices likely move in more of a sideways pattern into 2020 unless:

US Milk supply growth well below 1% annual rate

Demand for dairy products strengthens either in the US or internationally (trade barriers and general economy)

DMC provides greater support for smaller operations than they have seen in some time

Dairy production structure has changed dramatically over the past few years and that likely continues

My all milk price estimate for 2020 is $18.50

Questions

Dr. Scott Brown

University of Missouri

222 Mumford Hall

Columbia, MO 65211

(573) 882 – 3861

Twitter @MUScottBrown

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